VoxEU Column
by Fernando Cirelli, Arna Olafsson
The sharp rise in interest rates since 2021 has not been matched by equal increases in household savings rates in advanced economies. This column uses transaction-level data from Iceland to study how changes in interest rates affect household deposit holdings. It shows that for the average household, low-yield deposits barely respond to interest rate differentials, even when there are equally safe alternatives available. This inaction means households forgo significant income by not moving balances into higher-yielding accounts. The findings imply that monetary policy transmission through deposits is weaker and more uneven than standard models imply.
Link:
VoxEu Column: Households’ inaction in the deposit market